The Absurdity of the Eight Corners Rule: No Extrinsic Evidence For You!

Past contributors to the Insurance Commando Blog have expressed their frustration with Washington’s rigid “eight corners” rule in duty to defend cases. See, e.g., The Elephant in the Room. This rule generally states that insurers must only consider facts alleged in the complaint and the language contained in the insurance policy (four corners + four corners = eight corners) when assessing the duty to defend. The only exceptions to the rule benefit the insured and are based on a pro-insured principal that an insurance policy is a contract of adhesion and the only way that the insured can get the benefit of the contractual bargain is to require an insurer to consider all known facts in its determination in order to avoid ill-pled factual allegations by the claimant.

The inability to look at extrinsic evidence when assessing an insurer’s duty to defend can border on the absurd when the initial question is simply whether the alleged tortfeasor seeking coverage is an insured under the insurance policy. Because of the lack of flexibility in looking outside the complaint when assessing whether a person is actually an insured under the policy, Washington insurers must incur the expense of filing declaratory judgment lawsuits against such people in order to be relieved of its duty to defend. This is true even when there is no dispute about whether the alleged tortfeasor is or is not an insured.

A recent decision by Judge John Coughenour, State Farm Fire & Casualty Co. v. Garrett, et al, No. 14-1005-JCC (W.D. Wash. December 19, 2014), shows just how absurd the inflexibility of the eight corners rule can be. In that case, a minor was injured while riding a horse. The horse, Taz, was owned by Joseph Garrett. The injury occurred on property owned by Mr. Garrett’s girlfriend, Monika Glover. Ms. Glover and her ex-husband, Mark Glover, were named insureds on two liability policies issued by State Farm. The minor’s mother sued Mr. Garrett and Ms. Glover for her daughter’s injuries. Out of an abundance of caution, State Farm defended Mr. Garrett under the Glovers’ policies under a reservation of rights.

State Farm subsequently filed a declaratory judgment lawsuit against Mr. Garrett and the minor’s mother, as claimant. In the lawsuit, State Farm sought to relieve itself of defending and indemnifying Mr. Garrett on the grounds that he was not an “insured” under the policies issued to the Glovers given his status as a boyfriend of Ms. Glover. State Farm filed a summary judgment on the issue. The policies defined “insured” as the named insured, and, if residents of your household, the named insured’s relatives.

State Farm argued that prior case law held that a “relative” is “a person connected with another by blood or affinity” and that an “affinity relationship” requires marriage. State Farm conceded that no Washington case had specifically held that a boyfriend or girlfriend is not a relative. Judge Coughenour granted State Farm’s motion, which was unopposed by Mr. Garrett, holding that Mr. Garrett was not a relative of Ms. Glover and thus, did not qualify as an insured. Judge Coughenour also held that Taz the horse was not an insured because he was not owned by an insured person. Consequently, Judge Coughenour held that State Farm had no duty to defend or indemnify Mr. Garrett because he was not an insured.

To recap, in order to strictly comply with the eight corners rule in Washington, State Farm was forced to incur substantial expense and use precious federal judicial resources by filing a declaratory judgment lawsuit and bringing an unopposed dispositive motion in order to have a court tell it that a named insured’s boyfriend was not an insured under her homeowners’ policy when none of the parties disputed this fact. While the eight corners rule is certainly a beneficial one, the lack of flexibility or common sense in allowing certain exceptions makes the rule an inefficient one in certain instances. A more common-sense approach has been adopted in Oregon where the court of appeals carved out an exception to the eight corners rule by allowing an insurer to use extrinsic evidence to determine whether the party seeking coverage is an insured. See Fred Shearer & Sons, Inc. v. Gemini Ins. Co., 237 Or.App. 468, 249 P.2d 123 (2011). Until Washington recognizes such an exception, however, insurers will be forced to unnecessarily litigate the question of whether someone is an insured simply because the complaint is silent on the issue. We here at the Commando Insurance Blog will be on the lookout for any babies being tossed out with the judicial bath water.